UNIT
TWO
READING
INTRODUCING ACCOUNTING
Accounting provides a financial
picture a business firm. An accounting department records measures the activity
of a business and reports on the effects of these transactions on the firm’s
financial condition. Accounting records and reports provided data that are used
by management, stockholders, creditors, independent analysts, banks and
government.
The
income statement and balance sheet are the two types of records that most
business prepare regularly. By reading these statement, once can identify how
money was received and spent by a company. By analyzing these records, one can
determine whether or not the activities of the company have been good for it.
One
major tool for the analysts of accounting records is ration analysis. A ration
analysis is the relationship of two figures. There three main categories of
ration in finance. One such ratio deals with profitability. The main example of
this is the Return on Investment Ration, which is the most widely used single
measure of a firm’s operating efficiency.
A
second set of rations helps a company evaluate its current financial position.
These rations deal with assets and liabilities. A third set of rations deans
with the overall financial structure of the company, primarily analyzing the
values of the ownership of the firm.
A. Answer the following
questions
1.
In general terms, what is the purpose of
accounting?
The purpose of accounting is to
records measures the activity of a business and reports on the effects of these
transactions on the firm’s financial condition.
2. Who
uses the data which is provided by accounting records?
Accounting records and reports
provided data that are used by management, stockholders, creditors, independent
analysts, banks and government.
3.
What are the two types of record that are
prepared by most business?
The income statement and balance
sheet
4.
What can one learn by analyzing the income
statement and balance sheet of a company?
By reading these statement, once can
identify how money was received and spent by a company. By analyzing these
records, one can determine whether or not the activities of the company have
been good for it.
5. What
is ratio analysis used for?
It is used for evaluating a company’s
current financial position.
B. Choose
the correct word available to complete the following sentences.
·
Record (N)
·
Record (V)
·
Report (N)
·
Report (V)
·
Profit (N)
·
Profit (V)
1. Accounting is needed
to (Record) all business transactions
2. He keeps very
neat (Report)
3. Our firm’s
current (Profit) are
very high
4. They (Report) from their
association with that company
5. Our (Record) of accountant receivable show that $5.000 is
owed to us
6. The activity is (Record) on income statements and balance sheets
7. Secretary had finished
typing the (Report) before the manager arrived at the office
8. How much does the
company make (Profit) this year?
Dialogue
Accounting
(David and Mary both work in a large company. They are mow
having lunch in the company cafeteria)
David : I’m glad you could meet me for lunch. You
looked so busy this morning. Surrounded by so many statements and your calculator, of course.
Mary : Of course! My calculator is my
right hand!
David : I never noticed
Mary : seriously, David. You know,
the accounting department is very busy
David : I know, we’re all busy, totaling
accounts. But I’ve already turned on the report on my department
Mary : Then I guess my department
should receive your statement soon
David : You already have it
Mary : Good
David : So, how is business?
Mary : How would I know? I only work
on some records and statements. I don’t have the whole picture. I’m not the
auditor. But I guess the company’s doing well
David : I certainly hope so. We have to keep the
investors happy, creditors, labor union and really, every one
Mary : Well, the balance sheet and
profit and loss statement for this fiscal year should be ready soon. So any one
can check out of the company in the financial statements
David : Speaking of finances, are you the one who
works on the paychecks?
Mary : Why do you ask about it?
David : I thought you might explain to me the
difference between my gross day and my net take-home pay?
Mary : The explanation takes one
word, taxes. Actually. The salaries are gone through the computer
David : Really?
Mary : Sure. How could we handle any
volume in a large company, billings, sales, salaries, without computer?
David : You’re right. Mary, you can credit my
account and day
Mary : David, don’t be dilly. Let’s
get some dessert
C. Complete
the following words
1.
This is the name for buildings machinery, money
in the bank and money owned by customers (Assets)
2.
The loss of value of the things in number one.
(1) (Depreciation)
3.
Money which is borrowed (Loan)
4.
The extra money a company or person pays for
borrowing money (Interest)
5.
The total sum of money which is supplied by the
owners of a company to set it up (Capital)
6.
Cash or goods which the owner takes from the
company for his own private use
7.
These are bought by people wishing to invest in
the company (Shares)
8.
The extra amount which is paid for a company
above the value of its assets(Goodwill)
9.
The purchase of another company (Acquisition)
10.
An official examination of the accounts (Audit)
11.
A financial plan for the future (Budget)
12.
A statement of the financial position the
company (Balance sheet)
13.
The official books for keeping accounts (Ledgers)
14.
A reduction in the price which is offered
to customers (Discount)
15.
This company has supplied goods but has not
received any money for them yet (Creditor)
16.
Goods which has the company has available
to sell (Stock)
17.
Customers who have received goods but not paid
for them yet (Debtors)
18.
This is the name of the difference between the
credit and debit side of a account (Balance)
19.
Companies make this when they sell their
goods for more than it costs (Profit)
20.
Companies make this when they sell their goods
for less than it costs (Loss)
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